Alternative ETFs bring sophisticated trading techniques to the average investor, according to iStockAnalyst. For instance, some utilize “130/30,” which refers to a portfolio tool that uses leverages to create a 130% long position and a 30% short position. This is similar to hedge fund techniques that may allow an investor to make money on both the up- and downside of the market. [More on 130/30.]

• ProShares Credit Suisse 130/30 NYSEArca: CSM)
• First Trust Enhanced 130/30 (NYSEArca: JFT)

It should be noted that these types of ETFs haven’t been trading long enough to develop a solid track record. Other hedge fund-esque ETFs use strategies like long/short, global macro, and merger arbitrage.

• iShares Diversified Alternative Trust (NYSEArca: ALT)
• IQ Hedge Macro Tracker (NYSEArca: MCRO)
• IQ Hedge Multi-Strategy Tracker (NYSEArca: QAI)
• IQ ARB Merger Arbitrage (NYSEArca: MNA)
• IQ CPI Inflation Hedged (NYSEArca: CPI)

Another type of investment technique uses what you might have heard as “covered call writing” or “Buy/Write.” One buys a stock and sells an equivalent of call options against it. As a result, you’ll be forced to sell at a profit, but if the stock goes down, the loss will be reduced by the amount of income received from selling options that expire. If the stock goes sideways, then you keep the option-selling income with no gains or losses on the shares. [More on Buy/Write.]

• PowerShares S&P 500 Buy/Write (NYSEArca: PBP)
• iPath CBOE S&P 500 Buy/Write ETN (NYSEArca: BWV)
• PowerShares Nasdaq 100 Buy/Write (NYSEArca: PQBW)

When people think of market volatility, they look at the Volatility Index, or VIX. The VIX is a “fear guage” that is low when investors are optimistic about the market and high when people become gripped with fear. [More on the VIX.]

• iPath S&P 500 VIX Short-Term Futures ETN (NYSEArca: VXX)
• iPath S&P 500 VIX Mid-Term Futures ETN (NYSEArca: VXZ)

Be sure to read Rydex|SGI’s Carl Resnick’s thoughts on bringing alternative indexing strategies into the mainstream, as well. You can find the story here.

Read the disclaimer, as Tom Lydon is a board member of Rydex|SGI.

Max Chen contributed to this article.

ETFs have morphed into several exotic forms, covering a number of market niches in nearly every way possible. Don Dion for TheStreet explains that these newer “non-traditional” ETFs area newer generation and that they do add some level of risk that more traditional ETFs don’t have:

• Leveraged and Inverse ETFs: These ETFs allow investors to gain or lose two to three times the direction of a particular index. Because these funds reset every day, they are useful only to seasoned traders who understand their risks rather than long-term buy-and-hold investors. Direxion Daily Emerging Markets Bull (EDC) is a newer example of an ETF of this type. Read our special report on leveraged and inverse ETFs here.

• Futures-Based Commodity ETFs: These ETFs seek to track commodities by investing in baskets of futures or swaps. While these ETFs may get investors one step closer to a “pure play” on commodities swap prices, they are prevented by problems such as  contango from fully performing at all times. United States Natural Gas (UNG) is one example of such a fund. It’s been in the hot seat lately because of the accusations that funds of this type are manipulating the markets. The Commodity Futures Trading Commission (CFTC) is currently weighing position limits that could affect most, if not all, of these types of funds.

• Exchange Traded Notes (ETNs): A “cousin” of ETFs, these notes track baskets of debt, secured by the provider, rather than a basket of stocks. An ETN can also be sold short, trade like a single stocks and offer special exposure to currencies or commodities. It’s important to stress that ETNs are backed by the full faith and credit of the issuer, so if the issuer defaults, you become just another creditor. Examples of ETNs include iPath India (INP) and Market Vectors Double Short Euro (DRR).

• ETFs of ETFs: These funds layer on top of other funds, giving investors more bang for their buck. But they can also compound fees and contain products some investors may not want, so look under the hood first before you buy. Many of these ETFs consist of already-existing products that are packaged together into one ETF. Powershares Autonomic Balanced Growth NFA Global Asset Portfolio (PAO) and the IndexIQ Hedge Fund (QAI) are two examples of such funds.

For more stories about these topics, visit our leveraged, ETN or Commodity categories.

Index IQ has just expanded its lineup with a second ETF using a hedge fund replication strategy in addition to filing for several more. The two ETFs offered now are:

• Hedge Fund Macro Strategy Tracker ETF (MCRO), launched this week
• IQ Hedge Multi Strategy Tracker ETF (QAI) up 17% since March inception

According to Steve Orlofsky for Reuters both funds have an expense ratio of 0.75% and invest in a variety of ETFs. Computers generate the hedge fund mix. The new fund tracks an index that covers both global and macro emerging markets strategies.

QAI has seen plenty of investor interest, gathering $22 million in assets since its launch.

IndexIQ in April told the Securities and Exchange Commission that it plans to launch as many as 15 exchange-traded funds emphasizing different hedge fund strategies. Next up is a natural resources-based ETF, as well as commodities mixed with equities to hedge inflation.

Last year’s hedge fund performance and the angry investors who lost big are ready for this opening within the markets, which will give them access to hedge fund strategies while utilizing all the benefits of ETFs.

Meanwhile, WisdomTree is planning three hedge fund ETFs. One will follow a long/short strategy, while another managed futures. The third will invest in a portforlio of inflation-linked securities with a focus on commodities and commodity strategies.

This new ETF, established by IndexIQ analyzes publicly available hedge fund performance data and then tries to replicate returns utilizing ETFs and other liquid trading vehicles.  Additionally, it promises to perform as well as a hedge fund without the risk and with low correlation to traditional assets.  Another benefit that this ETF could offer to investors is risk reduction because of its low correlation with the stocks and bonds that already dominate an investor’s portfolio.

To take it a step further, the ETF replicates six different common fund strategies using ETFs to match the calculated risk exposure of the hedge funds, states Scott Burns of Morningstar.  It invests in other ETFs, and offers investors a low cost option to the world of alternative investments.

As far as performance, the Index IQ Hedge Mst ETF (QAI), is up 2.8% since inception and is well above its 200-day moving average. The downside is that it is a bit more expensive than a typical ETF, with an all-inclusive expense ratio of 1.09%.  This is still a far cry from the nearly 6% in annual fees that most hedge funds collect, however, which could be a key selling point for investors who want this type of exposure.

Kevin Grewal contributed to this article.

Index IQ’s first hedge fund ETF is setting the bar for the 15 new funds that will track indexes created by IndexIQ. The IQ Hedge Multi Strategy Tracker (QAI) debuted on the NYSE Arca electronic stock exchange last month, reports FIN Alternatives.

The ETF invests in other ETFs such as the iShares Lehman Aggregate Bond Fund (AGG) or the iShares MSCI Emerging Markets Index (EEM). Jeff Benjamin for Investment News notes that the ETF is being marketed as a low-cost retail-investor gateway to access the mysterious world of alternative investments. Benjamin says the fund passes muster on some big points: it offers the liquidity that characterizes ETFs, full transparency and low fees. The expense ratio is 1.09%, which is high for an ETF, but low when compared with other active strategies.

The planned ETFs are equal-weighted and asset-weighted versions of the Multi-Strategy Tracker ETF, as well as an inverse version. Strategies getting their own ETFs include absolute return, convertible arbitrage, dedicated short-bias, distressed, managed futures, market directional, merger arbitrage and relative value. Expense ratios are not yet determined.

These new ETFs are unique and give investors the kind of options they’ve been seeking, especially when they target markets that were previously unavailable to them. The big question is whether these ETFs will outperform the general markets and give protective hedging strategies to protect investors from downtrends.

The IQ Hedge Multi-Strategy Tracker (QAI) began trading today. IndexIQ analyzes publicly available hedge-fund performance data, then tries to match returns using ETFs and other liquid trading vehicles. The fund won’t invest in hedge funds. It has an expense ratio of 0.75%, says Joseph Checkler for Dow Jones Newswires.

IndexIQ has had luck with other hedge fund replication products, including the IQ Alpha Hedge Strategy Fund, a mutual fund that was down just 4.1% for the year, compared to an 18.2% loss in the S&P 500.

QAI will encompass a number of hedge fund strategies, including long/short equity, global macro and fixed-income arbitrage. Eventually, they’ll launch other ETFs that will invest in some of those individual strategies.

The index will be rebalanced monthly, says Murray Coleman for Index Universe. Adam Patti, chief executive of IndexIQ, says the fund will give investors a chance to capture the diversification benefits of hedge fund strategies without the cost.

If it’s successful, the fund could give hedge funds a run for their money, since they have a fee structure that critics have called exorbitant. Most actively managed hedge funds charge annual expenses of 2%, and many have another 20% in performance fees.